House builders jump as chances of 2014 rate rise wane

(Update) The FTSE 100 edged higher, helped by the continued rally of house builders and a jump in Rolls-Royce (RR) after reports it is to win a deal to upgrade Airbus aeroplanes.

The UK blue-chip index added 13 points, or 0.2% to 6,748, with house builder Barratt Developments (BDEV) leading the way, up 3.2% at 374.6p. Rival Persimmon (PSN) wasn’t far behind, inching up 1.4% to £12.76. A week that began with slumps in the share prices of house builders as worries over interest rates weighed is now ending with a rally for the stocks, after the Bank of England’s plans to tackle soaring house prices proved more lenient than expected.

The Accumulator: tough week for markets

In the five days up to yesterday's close world markets were down 0.4%, with the FTSE 100 among the poorest performing indices, dropping 1.3%. It's been a week where the major macroeconomic drivers of the UK blue-chip index's performance have seemed to behave schizophrenically. Fears of an early interest rate rise were sparked at the beginning of the week by comments from even one of the most dovish monetary policy committee members that a hike was likely before the year is out. Yet by the end of the week, that was looking less likely as first quarter UK gross domestic prooduct growth was confirmed at 0.8%, when some had expected the rate to be revised upwards.

Escalating tensions in Iraq also took their toll, with the FTSE 100's biggest slump of the week arriving on Wednesday as security forces in Iraq fought for control of the country's biggest oil refinery. Those concerns eased, however, as shown by the 1.9% fall in the Brent oil price, as investors grew less concerned about disruptions to supply caused by the fighting.

The US delivered the big market shock of the week, declaring that its economy had shrunk by 2.9% in the first three months of the year, in a huge downwards revision. But while that exacted an immediate blow to investor sentiment, the recovery was almost as quick. The relatively benign 0.4% drop for the S&P 500 over the week shows investors are focusing much more on the expected rebound in the second quarter.

Rate rise prospects wane

This morning's confirmation of UK gross domestic product growth of 0.8% in the first three months of the year, when some had expected the rate to be revised upwards, appears to have lessened the chances of an interest rate rise in 2014.

'The unchanged picture of the economy at the start of the year will be greeted with some disappointment at the Bank of England, where policymakers had been expecting the data to be revised higher, ultimately to 1%, said Chris Williamson, chief economist at Markit.

'The weaker-than-hoped-for rate of growth therefore adds to the case for interest rates to remain on hold for the rest of the year.'

Rolls-Royce jumped 1.4% to £10.60 after Reuters reported the aeroplane engine maker was set to win a contract to be the sole supplier for an upgrade of Airbus A330 aeroplanes.

Harry Breach, analyst at Westhouse Securities, said the news represented a ‘modest positive’ for Rolls-Royce. ‘While the A330 is a mature product that saw service entry in 1994, and thus the future sales potential is likely to be limited to 400-800, having a sole-source [exclusive supplier] position should rive material additional sales over the coming decade and it should help Rolls-Royce to preserve or expand its market share.’

Barclays (BARC) mounted a small recovery after heavy falls yesterday on news of a US lawsuit over its 'dark pool' trading operations, rising 1.2% to 217.5p. But Standard Chartered (STAN), another big faller yesterday due to a profit warning, continued to drift lower, losing 0.6% to £11.95.

Pearson (PSON) was the biggest faller, dropping 2% to £11.21 after the Financial Times publisher reiterated that profits for the first half of its financial year would be lower than in 2013.

Outside the FTSE 100, shares in Imagination Technologies (IMG), fell 7.2% to 208.8p after its biggest shareholder Intel sold a 9% stake in the company which designs chips in smart phones.

Fellow FTSE 250 stock National Express (NEX) jumped 3.5% to 256.7p after the transport operator won a 15-year contract to run rail services in the Essex Thameside area.

Gold shed $2.5 from a two-month high to $1315.1 after US Federal Reserve official James Bullard suggested the central bank could raise interest rates sooner than expected.

Oil steadied with the price of Brent crude trading at around $113 a barrel after one of its biggest weekly falls this year, as concerns about exports from crisis-hit Iraq begin to ease.

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